DB Early Morning Reid Macro Strategy

DB Early Morning Reid - Macro Strategy Key Market Data (Index @ Close // Change) (S&P 500 @ 7620 // -0.48%) (STOXX Europe 600 @ 636 // -0.49%) (iTraxx Crossover @ 262 // +5) (Brent Oil^ @ 107.23 // -0.46%) (10yr Treasury^ @ 5.01 // 5 bp) (10yr Bund @ 3.52 // 1 bp) (Dollar Index^ @ 99.61 // +0.43%) (Further Fed hikes/cuts priced for 2026 @ 52 // 2 bp) (Further ECB hikes/cuts priced for 2026 @ 39 // 0 bp) ^ - Change from previous day's 4:30 GMT to 04:30 GMT

*** Henry’s written a report for the Deutsche Bank Research Institute on how we’ve shifted from a demand- driven world in the 2010s to a supply-driven one in the 2020s. It covers how supply shocks have changed the economic playbook, rendering traditional demand-side stimulus ineffective, and making inflation spikes more likely. You can see the report here. ***

*** And staying in advertising mode, Adrian Cox has just published “AI doom: A brief history of bad tech predictions”, which puts the current concerns in the context of good and bad predictions in the past and breaks down why it is just so hard to predict the impact of technology. Click here to read and share on the Deutsche Bank Research Institute website. ***

As I continue to bravely soldier on through manflu, markets have started the week with a few notable coughs and splutters as inflationary fears and talk of an AI slowdown have led to a difficult 24 hours. Although the weekend talk was all about AI, the broader market driver was a fresh rise in energy prices, with Brent crude (+1.02%) closing at $105.68/bbl, and back above $107 this morning, while European natural gas futures (+3.83%) hit their highest since 2022. So that pushed bond yields to multi-year highs, and we even saw the 10yr Treasury yield (+2.0bps to 4.99%) move above 5% in trading for the first time since 2023. It's back above that level in Asia as I type. The 5% threshold alone would have been a newsworthy day, but we simultaneously saw a huge slump for chip stocks given the AI slowdown headlines, with the Philly semiconductor index (-5.86%) posting its worst day since July. So it was another session where September lived up to its reputation as the worst month of the year for asset performance, with bonds and equities continuing to struggle. Today we'll hear from US Treasury Secretary Bessent in his testimony to the House Financial Services Committee. It'll be interesting to see if he tries to lean in some credible way against the rising tide of bond yields.

Before this, geopolitical headlines were the biggest factor behind yesterday’s selloff. In part, this followed Friday night's closure of Saudi Arabia’s east-west pipeline, which acts as an alternative to the Strait of Hormuz. There was hope this was largely precautionary, but the Associated Press reported officials yesterday who said the repairs could take 3-5 weeks. So with another supply route taken out, that added to fears about a lengthier period of disruption. In addition, as we discussed yesterday morning, the

meeting between Iran and other Gulf nations about a temporary shipping lane in the Strait of Hormuz scheduled for Monday was postponed on Sunday. We don’t have the exact details, but Bloomberg reported that a source had suggested this was partly because of Saudi Arabia’s frustration at Iran- backed groups continuing attacks on its territory. So that dampened hopes about traffic resuming through the Strait of Hormuz anytime soon.

We did see a decent turnaround later in the session after President Trump posted that Russia and Ukraine had agreed to halt their strikes on energy targets and made a series of posts about Iran, including that it “wants to make a deal, quickly and badly”. It later appeared that any Russia-Ukraine deal on energy strikes was not actually agreed yet, with Ukraine’s President Zelenskiy acknowledging a “strong US proposal” while saying that Ukraine would suspend its strikes if Russia were to stop attacks on Ukraine’s “energy facilities, critical infrastructure and food supply routes”. Still, with Trump’s posts suggesting an increased sensitivity to higher energy prices, and with Iran’s ILNA citing Pakistani sources that the US was seeking a “step-by-step” agreement…